The week ahead

With the excitement of this week's RBA Board Meeting and US labour market data out of the way, attention next week turns to the ECB interest rate meeting, key U.S inflation data, and the February labour force report to be released in Australia.

Should next week's US CPI be much hotter than the 0.4% expected, it may be the final confirmation the market is looking for that the FOMC will hike rates by 50bp in March, thereby re-accelerating its rate hiking cycle. In Australia, there will be keen interest to see further confirmation that the labour market is cooling after the RBA's record 350bp of rate hikes since May.

The week that was - highlights

1. The RBA raised rates by 25bp to 3.60%, its 10th consecutive rate rise. Notably, it softened its forward guidance, removing key works "increases" and "months" from a critical paragraph in its February statement
2. The RBA's dovish shift was reiterated in a speech by Governor Lowe on Wednesday, who opened the door for a pause in the RBA's rate hiking cycle "[A]t some point, it's going to be appropriate to sit still and assess the collective effects"
3. In testimony to Congress, Fed Chair Powell opened the door for a 50bp rate hike in March and a higher terminal Fed terminal rate
4. Powell acknowledged that recent economic data has been stronger than expected. And if the "totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."
5. Crypto-friendly bank Silvergate announced it would enter voluntary liquidation and liquidate its $2 billion asset portfolio
6. The AUD/USD plunged to a four-month low at .6567, battered by the twin heavyweights of a dovish shift by the RBA meeting and a hawkish shift from Fed Chair Powell.

Key events for the week ahead:

Tuesday, March 14th: US CPI for February

In January, the annual headline inflation rate in the US fell from 6.5% in December to 6.4%, notebly less than the market forecast of 6.2%. Core CPI eased to 5.6% from 5.7% in December but less than market forecasts for 5.5%.

• This month's headline inflation is expected to increase by 0.4%, taking the annual inflation rate to 6%. Core inflation is expected to rise by 0.4%, with the annual rate at 5.5%
• Within the details, the rise in inflation is expected to be driven by gains in used car prices (+0.5%), reflecting rising used-car auction prices
• Strong demand for air travel and elevated jet fuel prices will see airfares increase by 8%
• Providing some offset shelter, inflation is expected to continue to decelerate.

Thursday, March 16th: Australia Labour Force Data for February

In January, Employment declined by 12k, its second fall in succession, missing market forecasts for a 20k rise. The unemployment rate rose from 3.5% to 3.7%, despite the participation rate dropping to 66.5%, falling further from the 66.8% high of November.

• The ABS noted, "Along with a larger-than-usual increase in unemployed people in January, there was also a similarly larger-than-usual rise in the number of unemployed people who had a job to go to in the future."
• While they would count as unemployed in the survey, this is largely temporary and like to do with some seasonal effects in play over the holiday period. It suggests that the labour market was not as weak as the headline implied
• This month the market is looking for a rise in employment of 45k and for the unemployment rate to remain at 3.7%.

Thursday, March 16th: ECB interest rate meeting

• The ECB steps up the plate this week, and after raising its key deposit rate by 50bp in February to 2.5%, the market is fully priced for a follow-up 50bp rate hike this week
• Sticker-than-expected inflation will likely see the ECB signal another 50bp rate hike in May, with the market pricing a terminal ECB rate of 4% before year-end
• The faster pick-up in German growth numbers will likely see the ECB staff forecasts for both growth and core inflation revised higher.